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Tuesday, April 5, 2016

Bangladesh's growing middle class

Syed Mansur
Hashim

According to
a new report titled 'The Surging Consumer Market Nobody Saw Coming' published
by the Boston Consulting Group (BCG), the middle class of Bangladesh is
emerging as one with purchasing power that values foreign brands and is hopping
on to the digital bandwagon in their millions. Obviously this opens up new
opportunities for foreign firms hoping to cash in on the spending spree
Bangladeshi consumers have embarked upon.

The report
and its findings reveal some interesting data. For instance, the average income
of targeted families which falls squarely into the 7 percent of the population
that constitutes the middle class have an average annual income of US$5,000.
The consumer product revolution that is being witnessed in this class,
especially with the proliferation of banking facilities like credit purchases
and easy installment / higher-purchase forms of payment and affordable loans
have seen the consumer market record stupendous sales in consumer products
ranging from foreign cosmetics, air-coolers, refrigerators to passenger
vehicles.

Seven
percent of the population with purchasing power translates into roughly 11
million people who are “middle and affluent consumers” (MAC) are seen as
confident consumers with an expectation of seeing their incomes increase
positively in the next fiscal. Yet, there is also another undercurrent that
differentiates the Bangladeshi average consumer from their Asian counterparts
i.e. the aversion towards accumulating debt which they may or may not be able
to repay. Despite reservations on affordability, Bangladeshis are hopping on to
the digital bandwagon at a stupendous rate.

It is
estimated that more than 50 million people use internet services on their cell
phones. There is also a shift in consumer preferences being witnessed when it
comes to shopping habits which had long been dominated by traditional
convenience stores and supermarkets. That more and more people are using the
internet to buy and sell products from household products to cars and even
land, houses and apartments, the latter three being most valued of fixed
assets, is another very interesting development. In urban centres, “plastic”
(debit / credit cards) is making inroads into the purchase and sales of
consumer products.

As stated by
Vivek Nauhbar, a BCG consultant and another co-author. “Companies should start
building robust e-commerce platforms designed for interacting with consumers
through small digital screens to meet growing mobile-enabled demand.”
Companies' marketing strategies need to be reoriented to factor in consumer
traits that revolve around fear of accumulating debt – which means offering affordable
financing in terms of loans and lower interest rates.

So how is a
country that is ranked by the World Bank of having a sub-Saharan category per
capita income of approximately US$1,100 per annum manage to find itself as an
emerging market for consumer products? The country has experienced an average
GDP growth rate of around 6 percent for the last decade. Its apparels industry
(RMG) has emerged as number 3 in the global market riding high on low wages and
an abundant pool of labour. The strong growth of inward remittances by the
hundreds of thousands of expatriate Bangladeshi workers amounting to billions
of dollars annually are all contributing factors to the rise of the Bangladeshi
middle class.

Companies,
both local and foreign, need to wake up and take notice of these trends if they
wish to be companies of choice to whom Bangladeshi consumers will turn when
they go shopping. The average consumer in Bangladesh is very value-conscious.
Whilst, more money may be available for expending on a new product (which is
viewed as a step-up from the current “model”) consumers can truly be bought
over to adopt a product which gives the notion of “good value for money”.

This explains why the middle class of major urban centres like Dhaka and
Chittagong have opted for brands like Walton, which makes everything from
motorcycles to smart phones, is making a killing; or why a Chinese-packaged
Bangladeshi company named Symphony has captured around 50 percent of the
internet-enabled smart phone segment. These companies understand what motivates
the customer: Good value for money and a relatively decent shelf life while
sporting technology that is second to none.

The biggest thing going for the country is its population – a young, vibrant
and growing population will help propel the country's growth engine and a
rising consumer base for many years to come. It is estimated that the poor
segment of the population that currently stands at 84 million will nearly halve
to 44 million by 2025 and the emerging middle class will have risen from the
current 17 million to 27 million in the coming decade. The rise in purchasing
power will not be limited to major cities like Dhaka and Chittagong, but spill
over to witness even greater impact in cities like Khulna (an emerging industrial
hub), Gazipur (already a major RMG centre), to other cities that will see
similar growth of urban populations and consumer bases. It is estimated that in
Bangladesh, by 2025, there will be “63 cities will have MAC populations of at
least 100,000 compared with 36 now.”